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Emerging Market Capital Outflows 2015

Capital outflows from the 15 largest Emerging Markets (EMs) amount to $600.1 bn over the latest three quarters to the end of March 2015 is more than that of during the 2008-09 financial crisis three quarters to the end of March 2009 with amount of $545.2 bn.

  From July 2009 until the end of June 2014, a net total of $2.2 tn in capital flooded into the 15 EMs.  The recent exodus of funds represents only about 27% of the total inflow.

The capital outflow "coincided" with the three consecutive quarters of EM currency depreciation against the US dollar.  The progressively unwind of the US dollar carry trade is the primary cause.  During the crisis, US dollar carry trade - which relied on borrowing in US dollars at low interest rates to invest in high-yielding EM local currency products, was a popular strategy to achieve a higher return.

Now, as the Fed is adopting a less accommodative tone to its monetary policy, the attractiveness of dollar carry trade become less appealing. 

It is believed that capital outflows in EMs will likely to persist though the magnitude of the exodus may ease.  The outflow was $255.3bn last quarter of 2014 vs $208.8 bn in the first quarter of 2015.

Reference

Financial Times, James Kynge, 2015-05-07, "Emerging Market Capital Outflows Eclipse Financial Crisis Levels"